ECONOMIC INTEGRATION AND THE IMMIGRATION ISSUE IN CARICOM 1
Presentation to A Branch of the Barbados Rotary Club Delivered by Lindsay Holder on 11 th August 2009 2
BREWSTER-THOMAS VIEW OF ECONOMIC INTEGRATION Havelock Brewster and Clive Thomas, in their 1967 text, ‘The Dynamics of West Indian Integration’, proposed a comprehensive approach to the economic integration effort in the Caribbean. Brewster and Thomas saw economic integration as consisting of more than a free trade area or customs union. For them integration included the integrated production of goods. Such production would require a functional and sectoral approach that explicitly allowed for the introduction of planning techniques to ensure the positive development of certain agreed areas of economic activity in the region. 3
Brewster and Thomas held the belief that it was through the integration of production that the most important gains would be achieved. They acknowledged that the integration of trade and production would have required economic cooperation in several sectors by the various countries. The strategy proposed by Brewster and Thomas was based on the premise that there already existed in many spheres of human activity a basic unity of the West Indies. 4
The authors asserted that basic unity was seen as deriving from a more or less common historical experience and was seen most clearly in the similarities in the social psychology of West Indians and the social structure of the area. For various reasons the proposals of Brewster and Thomas were never implemented. Perhaps the most important reason was that the then leaders of the various countries viewed things from a national perspective. 5
One can therefore conclude that the proposals of Brewster and Thomas, even though grounded in sound reasoning and good economics, were unrealistic since they did not take into account the political realities of the day. 6
ANOTHER VIEW OF ECONOMIC INTEGRATION IN THE CARIBBEAN The post federation efforts at integration began with the formation of CARIFTA on 15 th December 1965, then followed by the formation of CARICOM on 1 st August 1973, and finally by the establishment of the CSME on 1 st January 2006. CARIFTA, as the name indicates, was a free trade area, and CARICOM was a customs union. The CSME, also as the name indicates, is intended to promote the creation of a single economic space. 7
One of the major problems of Caribbean economies for several years has been high unemployment rates. It is only in recent years that the unemployment rate in Barbados has dipped below 10%. One of the major goals of the CSME is the free movement of labour with attendant rights. That goal is to be accomplished in phases, with the current emphasis being on the freedom of movement of those individuals who fall into ten specific categories. 8
Given the high unemployment rates in the region, particularly in Guyana and Jamaica and some of the smaller islands, one can argue that the ultimate goal of complete of freedom of movement is somewhat akin to the theory of economic development with unlimited supplies of labour. The theory of economic development with unlimited supplies of labour was first put forward in 1954 by the St. Lucian Nobel laureate in economics, Sir Arthur Lewis. The theory was formalised and extended in 1961 by two Yale University professors, Gustav Ranis and John Fei. 9
The theory basically argued that an underdeveloped economy consisted of two sectors; a traditional agricultural subsistence sector characterised by zero or very low productivity ‘surplus’ labour, and a high productivity modern urban industrial sector into which labour from the subsistence sector is gradually transferred. Both labour transfer and urban employment growth are brought about by output expansion in the modern sector. The speed with which they occur is given by the rate of investment or capital accumulation in the modern sector. Secondly, the level of wages in the industrial sector is assumed to be constant and determined as a fixed premium over the subsistence level of wages in the traditional agricultural sector. 10
Michael P. Todaro, a former Professor of Economics at New York University, has questioned the major assumptions of the Lewis-Fei-Ranis model. He demonstrated that that the rate of labour transfer and employment creation is not necessarily proportional to the rate of capital accumulation. He also pointed out that the model assumed that there was ‘surplus’ labour in rural areas and full employment in urban areas, but in several countries this was not true. Rather, the reverse tended to be the norm. Lastly, Professor Todaro asserted that one of the most striking features of the urban wage situation in almost developing countries was the tendency for wages to rise substantially, both in absolute terms and relative to average rural incomes, even in the presence of rising levels of open 11 unemployment.
Professor Todaro highlighted the traditional factors that have generally been thought to be important drivers of migration. These factors included: i. Social factors, including the desire of migrants to break away from traditional constraints of social organisations; ii. Physical factors, including climate and meteorological disasters like floods and droughts; iii. Demographic factors, including the reduction in mortality rates and the concomitant high rates of rural population growth; iv. Cultural factors, including the security of urban ‘extended family’ relationships and the allurement of the so-called ‘bright city lights’; and v. Communication factors resulting from improved transportation, urban-oriented educational systems, and the ‘modernising’ impact of the introduction of radio, television, and the cinema. 12
Professor Todaro then went on to characterize the rural-urban migration process. He asserted that migration is primarily an economic phenomenon which for the individual migrant can be quite a rational decision even in the presence of urban unemployment. He therefore argued that: i. The decision to migrate depends on ‘expected’ rather than actual-urban real wage differentials; ii. The probability of obtaining an urban job is inversely related to the urban unemployment rate; and iii. Migration rates in excess of urban job opportunity growth rates are not only possible but rational and even likely in the face of wide urban-rural expected income differentials. High rates of urban unemployment are, therefore, inevitable outcomes of the serious imbalance in economic opportunities between the urban and rural areas of less developed countries. 13
Given his findings, Professor Todaro argued that: i. Urban job creation is an insufficient solution for the urban unemployment problem; ii. Indiscriminate and costly educational expansion will lead to further migration and unemployment; iii.Wage subsidies and traditional scarcity factor pricing can be counter productive; and iv.Programmes of integrated rural development should be encouraged. 14
APPLICATION OF TODARO’S ANALYSIS TO THE CSME The current difficulty with the ultimate goal of full freedom of movement under the CSME is that the grouping of CARICOM member states is characterised by advanced development in some countries and underdevelopment in others. In accordance with Todaro’s analysis, complete freedom of movement will result in individuals from the underdeveloped countries relocating to the developed countries in search of work. This would be the case even if some of these individuals remain unemployed for extended periods, since their decisions would be based on their expected incomes. As demonstrated elsewhere, Barbados is already experiencing this problem since many of the un- documented immigrants in the island are either unemployed or underemployed or engaged in unlawful activities. If not controlled, the ultimate outcome will be higher rates of unemployment in countries such as Barbados and Trinidad and 15 Tobago.
Given the general economic constraints faced by member states like Barbados and Trinidad and Tobago, these countries would not be able to create jobs at a sufficiently rapid rate to absorb the increasing ranks of the unemployed, both nationals and non-nationals alike. The immediate solution for addressing the issues before complete freedom of movement can be contemplated is to address the underdevelopment of member states such as Guyana. If such a goal is to be effected, the more developed member states should provide financial aid, together with financial resources raised from the developed countries, to accelerate the development of member states such as Guyana. 16
THANK YOU 17
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